NC State Economist Mike Walden – “Taxing Investment Managers”

Mary:  I’m Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks at taxing investment managers.  Mike, an issue has come up among the presidential candidates over taxing investment managers, particularly those who manage hedge funds.  Please explain the issue.

Mike:  Summary Answer

  1. Income is taxed at different rates based on whether it is earned income or investment income
  2. Earned means from working at a job
  3. Investment means gains from invested monies
  4. Tax rate is lower on investment income for two reasons – was already taxed before money was invested, and want to encourage investments
  5. Question is whether compensation of some investment managers be considered earned income or investment income
  6. For hedge fund managers, is considered investment income and so get the lower rate;  opponents say should be labelled earned income
  7. Debate will go on – but fiscals impacts are relatively small – switch would net $1.3 billion annually, out total federal government revenues of near $3 trillion
  8. I’m MW

Mary:  And I’m Mary Walden for the North Carolina Cooperative Extension Service